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Who’s Getting What in the Lehman-Barclays Deal

By Dealbook September 18, 2008 11:45 amSeptember 18, 2008 11:45 am

Barclays’ move to snap up Lehman Brothers’ broker-dealer operations for around $250 million — and take its New York headquarters and some data centers in New Jersey for an additional $1.5 billion or so — would have been unthinkable just a few days ago. But on Wednesday, a bankruptcy judge signed off on the proposed sale process. The terms call for a break-up fee of $100 million, which Lehman must pay to Barclays if it accepts another bid (which seems highly unlikely at this point).

A look inside the court filings offers some other interesting nuggets about which assets Barclays is getting and how Lehman tried to protect its employees in the deal.

One thing that both sides seemed to agree on was that the transaction needed to move fast, before Lehman sustained any further damage to its reputation.

The hastily drawn-up merger agreement filed with the court was full of handwritten addenda and clauses scribbled in the margins.

According to the merger agreement, the deal must be closed by Wednesday, Sept. 24, or else it is null and void.

Barclays appeared to recognize that Lehman Brothers was only as good as the employees who make up the firm. If 30 percent or more of Lehman’s United States and Canadian work force quits before the deal closes, it has the right to walk away from the deal.

Barclays has also identified 200 employees “that have been designated as key to the success of the business,” according to the filing, along with eight employees designated as “critical” to the firm. Barclays requires a “substantial majority” of those 200 key employees and all eight of the critical employees to stay on or, again, the deal won’t close.

For the first 90 days after closing, Barclays has agreed to hold on to all of Lehman’s 10,000 employees in the United States or pay them 20 percent of last year’s salary as severance. The filing noted that this could cost Barclays up to $2.5 billion.

Employees who do stay on should expect to receive the same amount of bonus money for 2008 that Lehman had set aside for them before it collapsed. Sources close to Lehman told DealBook that those bonuses would probably be around 60 percent of what employees received in the previous year, because of the depressed market.

The written agreement says that Barclays cannot reduce the bonus pool unless more than 10 percent of the employees set to receive bonuses quit by the end of the year. So if only, say, 9 percent quit, the remaining employees would benefit as the bonus pool would be split among fewer people.

It was also interesting to see how Lehman’s assets were divvied up.

Barclays isn’t buying any of Lehman’s commercial real estate assets, private equity investments and hedge fund investments. Scribbled next to this exclusionary clause, an attorney wrote “and all Archstone debt and equity positions,” making sure that Lehman’s investments in the giant apartment company were not included.

But Barclays did agree to take 50 percent of Lehman’s positions in residential real-estate mortgage securities.

Lehman is keeping the artwork that adorns its hallways, though Barclays is allowed to hold on to it for a year and has the right to buy some of it — if, of course, it fits its English tastes.

(If you’re inclined to read the 100-page sale motion and agreement yourself, you can download it here.)

60% of last year bonus? Hmm, the firm lost several billion. The outlook for employment is mediocre at best. There are redundant positions in the overlapping firms. The bonuses have been accrued but not paid. Lehman is only getting $250MM for the investment bank, but they probably have accrued $4BN in compensation YTD. The bankruptcy judge should demand the accrual remain with the bankrupt entity and not go to Barclays. That will go a long way to satisfy some of the claims by the creditors.

other than asset manage europe, is offline. no overtime everyone covered by agreement is exempt. bonds are toast due to BK filing. share are gone unless something left over from bk, after legal fees highly unlikely.

Not all Lehman employees were in the position to make decisions about which assets to buy. Think about it. What happens to the administrative and junior staff (VP and under)? They would be left without any supper so to speak. The effects of their loss of income would be felt immediately especially in the New York State tristate area in terms of spending and tax receipts. Would you really like this drain on the econonmy?

In regards to overtime pay, that is only applicable to the non-exempt staff. Trust me, if Lehman isn’t busy, there will be no overtime to pay.

So from what I can see, the following have been bailed out:
-Bear Stearns
-Freddie & Fannie
-Lehman Brothers’ NY & Asian employees (including the corrupt management committee)
-MS & GS
-The rest of the financial system and all of those morons that thought lending money (one way or another) to blokes called “Earl” in trailer parks was a good idea

The only people that appear to have been punished in the attempt to avoid moral hazard are the employees in Europe that have been responsible for nearly half of the company’s revenues in the past two years and had absolutely nothing to do with any of this subprime-related nonsense.

Oldtimer @ 12:27 – A decent deal? A large number of hard-working people already lost their jobs for the risky investment made by a select few. Should another 10,000 employees suffer as well? Maybe we should just be happy for those that come out of this ok and keep our mouths shut if we feel differently.